Why Are People in Red States Dropping Out of the Labor Force?

President Donald Trump speaks at a rally in Nashville, Tenn., a state he carried in November. Tennessee's unemployment rate is historically low but its labor-force participation rate has declined two percentage points in just 12 months.
Photo:
Andrea Morales/Getty Images

For further evidence of a divided nation, look no further than state-level job markets.

Though the labor market has grown robustly nationwide this year, progress has been uneven across blue states and red states. An increasing number of people in red states have stopped looking for work, while a larger share of people in blue states are actively in the workforce.

The participation rate, which shows the number of people who are employed or are looking for work, fell in red states to 62% in September from 62.6% in April, while notching up in blue states to 63.9% from 63.8% over the same period, according to research from the Institute of International Finance. The report categorized a state red if it voted for President Donald Trump in 2016's presidential election and blue if it voted for Hillary Clinton.

The kinds of jobs available to workers in red states and blue states appear to be driving the trend. Slow-growing sectors like manufacturing and retail are more common in red states, the report notes, while lucrative and rapidly-expanding sectors like technology and life sciences are clustered on the coasts in blue states.

"It's industrial composition. [Red states] are heavy in industries that are downsizing and automating where prospects just look bad," said Robin Brooks, chief economist at IIF. "The [overall] job market is skewing toward high-value-added jobs."

Labor-force participation—the share of adults holding or seeking jobs—is a key metric of the economy's health. While some people drop out to take care of family, go to school or retire, others appear to be giving up on improving their prospects by finding work and contributing to the economy. The rate has been in long-term decline nationwide, but the divide between red and blue states has become sharper in recent months.

Declining workforce participation in red states is masked by the states' seemingly rosy unemployment rates, which have declined quicker than blue states' unemployment figures. Specifically, the unemployment rate in red states has declined this year to 4.2% in September from 4.8% in January , while the rate in blue states has only ticked down one-tenth of a percentage point, to 4.5% from 4.6%, over the same period.

“It’s a bit of an illusion because the participation rate has been dropping” in the red states, said Mr. Brooks.

Tennessee’s recent record-low unemployment rate illustrates the red-state trend. It declined two full percentage points in just 12 months, hitting a historically low 3%. But the recession pushed many Tennesseans out of the workforce, and the workforce participation rate has trended down since. Almost 65% of the state’s population was in the workforce a decade ago. In 2017, that number was less than 61%.

The IIF researchers rule out demographics as an underlying driver in declining red-state labor force participation, showing the median age is about the same across state types. Differences in economic growth between states also don’t look to be a main suspect, based on gross state product data.

"The picture is one where [many red-state] jobs are in industries that are going to keep getting automated, and the employment rate is going down because people are dropping out. In the end, it all boils down to saying, 'I’ve had it with this job market, I’m out,'” Mr. Brooks said.